How Long After Buying a Home Can You Refinance?

You’ve recently bought a home and you are already wondering about refinancing. First, you want to know when you can do it, which is simple: you can do it the day after you sign the papers. However, that may not be a wise decision. Here are some things to consider before looking into refinancing:1. Do You Have a Prepayment Penalty (PPP)?Because lenders take a risk when lending you money, they expect a certain amount of financial return. To ensure this return, lenders can institute a prepayment penalty (PPP) on your loan that can cost you thousands of dollars if you pay the mortgage off in full during a certain time frame, usually two or three years. Refinancing during your PPP term can cost you as much as 5% of your initial loan amount.2. Do You Have Enough Equity?For recent homeowners, it is unlikely that you have much equity, especially if you did not put much down. Of course, if you made a considerable down payment or got a great deal you could access that equity immediately; however, it may be costly to pay closing costs on another loan so soon.3. Is the Cost Worth It?Even if you have equity to refinance, you still have to ask yourself if the costs are worth it. If you are trying to save money, you have to project a break even point, i.e. the point when your savings covers the closing costs of the refinance. If that break even point is more than two years in the future, it is probably not worth refinancing.You certainly have the ability to refinance when you wish, but you should consider the aforementioned cautions before leaping to a financial decision that may do you more harm than good.